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When choosing a strategy for monetary policy, policymakers must grapple with mismeasurement of labor market slack, and of the responsiveness of price inflation to that slack. Using stochastic simulations of a small-scale version of the Federal Reserve Board’s principal New Keynesian...
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policy rate will become constrained in the future lowers today's inflation by creating tail risk in future inflation and thus … the tail risk induced by the ELB causes inflation to undershoot the target rate of 2 percent by as much as 50 basis points …
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